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- Title
Financial uncertainty and interest rate movements: is Asian bond market volatility different?
- Authors
Kim, Jungsuk; Kumar, Abhishek; Mallick, Sushanta; Park, Donghyun
- Abstract
The COVID-19 pandemic has given rise to a spike in financial market volatility. In this paper, we attempt to assess the effects of financial & news-driven uncertainty shocks in growing Asian economies, using country-specific bond volatility shocks as a measure of local interest rate uncertainty. Also, we contrast the effects of local uncertainty with global stock market uncertainty. Using bond market data from nine Asian markets, we uncover a transmission mechanism of uncertainty shocks via the bond market. The mechanism works as a crowding-out effect due to government-led excessive market borrowing with supply-side consequences for the private sector, as opposed to economic policy or global stock market uncertainty which works more like a demand shock as in the literature. We conclude that countries with growing fiscal deficits that entail a larger government bond market or higher current account deficits, tend to experience an increase in the cost of borrowing due to this bond market volatility or interest rate uncertainty shocks.
- Subjects
FINANCIAL markets; BOND market; MARKET volatility; ECONOMIC conditions in Asia; GOVERNMENT securities; ECONOMIC shock; BUDGET deficits; INTEREST rates
- Publication
Annals of Operations Research, 2024, Vol 334, Issue 1-3, p731
- ISSN
0254-5330
- Publication type
Article
- DOI
10.1007/s10479-021-04314-7